Building construction prices slow in Q3, but remain high
Building construction prices slowed in the third quarter of the year, but only compared to the record performance shown throughout 2021.
Statistics Canada reports that building prices for residential construction slowed to 3.7 percent following an increase of 7.6 percent in the second quarter of the year. The non-residential sector followed a similar trend, increasing 2.8 percent in the third quarter after posting an increase of 3.9 percent in the second quarter—the highest such gain in 13 years.
Although the price of lumber dropped from its peak in the second quarter of the year, the corresponding decrease did not cool off price growth in new housing construction.
Wood, plastics and composites continued to be the largest contributors to the price change for residential building construction in the 11 cities Statistics Canada surveyed.
Increases in the price of plastic resin, which spiked after the severe weather events in Texas in the spring, also contributed to the increase of residential building construction costs. Plastic resin is used in various building construction materials, from electrical wire to engineered wood and PVC piping products. Contractors also pointed to the rising costs of non-structural wood products, such as windows and doors—despite the overall decrease in lumber cost.
The next largest contribution to the change in residential building construction prices was the increased cost of concrete and its associated components, including reinforcing steel. The rise in the price of concrete contributed the most to higher costs of building high-rise apartments. Contractors cited increasing fuel and steel reinforcement prices, as well as truck driver shortages, as reasons for higher prices of concrete products.
Similar to the previous quarter, concrete, followed by metal fabrication products, contributed the most to the change in the cost of construction of non-residential buildings.
Contractors indicated that for both types of products, recent increases in raw steel prices were created by supply constraints that include longer delivery times and shorter price guarantees. Increases in labour costs, attributed to the skilled trade shortages across the sector, were also noted. Demand-induced price pressures have also contributed to the continued strength in the price growth of concrete and metal fabrication products within the non-residential sector.
Regional price fluctuations varied
Calgary (+5.4%), Edmonton (+4.9%) and Toronto (+4.5%) had the largest quarterly growth in residential building construction costs, all three mostly driven by single-detached houses and townhomes. In Calgary, contractors reported that the cost and availability of materials, the labour rate increases and the skilled labour shortage had an impact on the construction market.
Increases in the non-residential building sector were led by higher construction costs in Toronto (+4.2%) Ottawa (+4.1%) and Moncton (+3.3%).
Year-over-year cost increases are significant
Building construction costs for residential construction increased by 20.3% year over year in the third quarter, the highest year-over-year increase recorded since 2018. The cities with the largest year-over-year change this quarter were Calgary (+34.4%), Ottawa (+28.8%) and Edmonton (+24.7%).
Non-residential construction building costs rose 8.3% year over year, which was the largest gain since the third quarter of 2008. The cities with the largest year-over-year change this quarter were Ottawa (+13.6%), Toronto (+11.6%) and Montréal (+9.7%).